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The surge of investor interest in income exchange-traded funds from 2022 has continued this year despite the market rally, but a new group of funds is delivering the best returns. The JPMorgan Equity Premium Income ETF (JEPI) attracted a surge of cash last year with its outperformance and yield above 10%, showing funds that combined equity exposure with income-generating options strategies could find a foothold with investors. This year, a combination of growth and income has proven to be a winning strategy. The best performer among income funds with at least $50 million in assets has been the Global X Nasdaq 100 Covered Call & Growth ETF (QYLG) , with a total return of 26.1% through last week, according to FactSet. The fund invests in growth stocks through the Nasdaq 100 with a covered call strategy that generates income in exchange for sacrificing some upside. QYLG YTD mountain The QYLG ETF has been one of the top equity income ETFs so far this year. JEPI’s sister fund, JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) , is also a top performer with a return of more than 22% year to date. The equity component of the JEPQ fund is focused on growth stocks , while JEPI’s stock selection more closely resembles a value strategy. JEPQ is also much larger than the Global X fund, with about $3.7 billion in assets under management compared with $83 million. Requisite Capital Management’s Bryn Talkington named JEPQ her “final trade” on the June 22 edition of CNBC’s ” Halftime Report, ” saying the fund made sense “if you missed the run-up in tech or want a more defensive way to play it.” Another income-focused fund having a big year is the YieldMax TSLA Option Income Strategy ETF (TSLY) , which writes calls on the popular electric-vehicle stock. The fund had a total return of 22.7% for the year through last week. The big winners from 2022 have continued to grow despite underperforming in 2023. JEPI has seen about $9.5 billion of inflows even though its total return is about 4% year to date. The Schwab U.S. Dividend Equity ETF (SCHD) , which does not have an options component, has raked in about $4.6 billion despite having a negative total return in 2023. The growing size of the derivatives-based funds could be a test for performance and liquidity, with JEPI now at $27 billion in assets. But Sara Levin, director of ETF and derivative trading at WallachBeth Capital, said the ETFs are creating new ways to access long-established markets. “Some of these strategies that we’re seeing in these derivative ETFs have been around for a really long time,” Levin said. Several ETF issuers are now launching similar products to JPMorgan’s popular income fund, giving investors more options to find yield without leaving the equity market. “I think we are just at the tip of the iceberg. I think JEPI has done an amazing job of just getting eyes on the derivative ETF, or ’40 Act fund, wrapper. … My phone is ringing off the hook from groups who either already filed, are ready to file or are just tossing it around internally,” Levin said.
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